The question to always ask yourself when looking at price ratio charts is “does leadership appear justified?” To me the answer is likely yes.
Consider that should QE3 be implemented, funds likely will flow out of the U.S. and into emerging markets such as China. In addition, the longer something lags, the more likely it is to lead for some period of time. There is a decent cushion priced into China now relative to the U.S.
I’ve also seen a lot of data showing that funds have flown out of the China ETF in a big big way all year long. This alone makes the outperformance argument very real if one takes a contrarian standpoint.
Full disclosure: The author, Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.
